Thursday, February 21, 2008

I should have titled this "Markets in Everything". Honey Trapping is a service provided to those who fear their SO will be unfaithful given the opportunity. This service, provides the opportunity in the form of a similarly attractive individual and records the results. Given my next big paper is on extramarital sex, this should have seemed an obvious business plan.When Richard Martinez goes to a nightclub or bar, he often goes alone.

But the 38-year-old former RAF officer wastes no time in heading for a target -- a woman -- to flirt with and flatter.

Martinez will not try too hard, but will allow himself to be drawn into conversation and, if asked, will give out his phone number for a potential future date.

Martinez is a "honey trapper" -- or as he likes to call himself, an "integrity tester" -- one of a growing team of private detectives who are hired by wives, husbands or partners to test the loyalty of their loved ones.

"It's growing all the time," he says of his business, the Expedite Detective Agency (www.ex-da.com), which charges 300 pounds ($588) for an integrity test on a potential cheat.

Martinez refutes accusations of marriage-wrecking, arguing that his customers come to him when they are already concerned about their partner's fidelity or when rumors have led them to suspect an affair. But he admits around 80 percent of targets fail the test and turn out to be ready and willing to cheat on a partner.

Martinez and his colleagues -- he has a team of male and female trappers, some more, some less attractive -- record the whole "hit" on audio and video, so that the customer can see for themselves how the evening develops.

And Martinez has "rules of engagement": The target must not be drunk, there must be no touching, and the relative attractiveness of the trapper to the target must be equal.

"It's got to be a fair test," he explains. "So we make sure that we don't set a very attractive honey trapper on a not so attractive target, and vice versa."

"The customer needs a fair answer to the question of whether their husband or girlfriend is loyal."

Martinez says that while many of his customers may end their relationships, other use the honey trap to confront unfaithful lovers and appeal to them to change their ways.

Strip clubs are, as defined by noted social commentator Chris Rock, "a place for all the married men of America." As a demographic with a decent amount of discretionary income, these men are the driving economic force behind the $5 billion strip club industry. This capital is concentrated in relatively few hands: A mid-sized club can generate $15,000-$20,000 in revenue on a Saturday night, and a stripper with an absolute advantage can earn nearly $1,000 in a night.

But how are these lucrative businesses structured? How equitable is the distribution of wealth? What is the marginal utility of an additional hour on the pole? Economists were dying to know, and as my capstone experience I elected to conduct a microeconomic positive analysis of the strip club industry.

What I discovered was a startlingly efficient business model revolving around independent contractors-the strippers. In contrast to regular employees, strippers retain more control over hours worked, jobs accepted and the quality of their performance. Cinnamon, a dancer at a local gentlemen's club, gave me some hard data about strippers' tax requirements.

"As independent contractors we're required to fill out 1099-MISCs," she said. "The paperwork's a breeze and we can deduct any work-related expenses, like tear-away pants and 8-inch glass heels."

Because the clubs provide the stage area and any private rooms utilized, many require payment from strippers at the onset of the evening. The strippers, in turn, keep any and all tips. The initial direction of the cash flow sheds light on two elementary paradoxes evident in all strip clubs.

1) The ugly stripper paradox. The club has an incentive to get as many dancers on the stage as possible, as a part of their revenue is directly proportional to the number of strippers stripping. Naturally, there is a scarcity of attractive women, ergo, ugly strippers. However, while the invisible hand of the market economy fills attractive strippers' g-strings with singles, it tends to gently usher ugly strippers offstage. The remaining ugly strippers are a product of asymmetrical information. There is a finite time most men have at a strip club, so they might settle for a less attractive stripper if they don't know a more attractive one is just a few songs away.

2) The over-enthusiastic stripper paradox. We've all seen them-dedicated strippers who literally work their pants off for any dollar they can get. What's driving these women, in addition to professional pride, is the expense of working. If the stripper makes a $30 payment at the beginning of the night, then most of her first hour would be spent just getting back into the green.

Rational people respond to incentives, so having strippers start their shift with a deficit gives them strong encouragement to dance the night away. This effect is magnified for average-looking strippers, who don't garner as much in tips, and over-enthusiastic strippers tend to be average-looking.

Clubs also draw revenue from cover charges and the sale of complementary goods such as alcohol and cigars. Though the clubs' independent-contractor relationship with their strippers somewhat limits their legal liability, in most cases, clubs hire bouncers to maintain a positive working environment. Bouncers are paid at a flat, hourly rate, and in some cases the strippers are also required to tip them at the end of the shift.

Demand for strip clubs seems fairly inelastic, as moves by the states of Texas and Nevada to tax strip clubs (sometimes by 25-30 percent) have been met with little industry resistance (this also indicates that strip club tax rates are currently on the upward-sloping side of the Laffer curve). The customer's relative purchasing power also has little effect on strip club attendance-the wealthy visit just as often as the poor. However, price discrimination (usually having a weekday college or trucker night) is often utilized to increase market penetration and increase consumer surplus. Ultimately, though, strip clubs market luxury goods; holistically these facts suggest a kinked demand curve.

Although this article provides a solid introduction to the economic workings of the strip club industry, its length means it cannot begin to reflect all the conclusions I've made in my hours of (rather expensive) fieldwork, and by no means should it be taken as the 21st century's first definitive work on stripper economics.

Rather, this article was meant merely to arouse interest in the subject and provide a springboard for future studies. Important questions clearly remain: How slim is the profit margin of a club that opens at noon on a Monday? Would Washington University benefit from adopting the independent contractor business model? What are the effects of strip clubs on substitute goods such as meaningful relationships and pornography? If nothing else, it would probably do everyone good to consider the trade-offs of taking it off.

Watch for Compilations that are “Too Good to Be True": Many pirates make “dream compilation” CDs, comprised of songs by numerous artists on different record labels who would not likely appear on the same legitimate album together.

You can view the offending butt-clip here. It’s a rear view of a woman taking off her robe to shower. A kid accidentally walks in on her, and they’re both embarrassed. She covers up her boobies and woo-woo with her hands, and the kid retreats as fast as he can. It’s charming, it’s real, and it has nothing to do with sex.

Last weekend, a Beach police officer at Lynnhaven Mall gave Abercrombie & Fitch thousands - maybe millions - of dollars worth of publicity by seizing two sexy posters and slapping an obscenity charge on the hapless store manager.

The offending posters were those arty black-and-white photos for which the clothing chain is famous. One showed shirtless males, one flashing a little bit of buttocks. The other featured a female showing not quite as much as Virtus.

By Monday afternoon, after police brass learned that the obscenity story was burning up the news and the blogosphere, Beach officials acted - b ut not before readers of The Drudge Report were exposed to the lunacy and the story was one of the most popular on Yahoo.

It was decided that the obscenity charge should be dropped and the posters returned.

One detail remains. Even after the matter is dismissed by the court, an innocent store manager will have an obscenity offense on his record.

"We would take the lead in getting the courts to expunge that," Deputy police Chief Jim Cervera assured me.

Officials did the right thing in mopping up this mess. But it raises questions about the procedure. Seems to me, cops ought to consult the city or commonwealth's attorney before lodging obscenity charges against a business.

That didn't happen, Cervera said.

According to news reports, an officer had asked the store manager to remove the posters last week. When he didn't comply, the place was raided.

One question: Since when are police in charge of mall decorations?

Every cop should know it's devilishly hard to make obscenity charges stick. There's that pesky matter of the First Amendment. Unless materials show private parts, it's almost impossible to get a conviction. These photographs aren't even close.

Monday, February 04, 2008

Making something illegal does not eliminate the demand. And it often leads to an increase in other illegal activities as well. For example, make strip clubs illegal, and you'll have underground clubs pop up, but the underground clubs will likely also offer other illegal services, like prostitution. The lesson? Keep strip clubs legal, regulate them, and you'll be better off.

Associated Press - February 3, 2008 1:55 PM ETSecret nightclubs open as strip club restrictions go into effectCLEVELAND (AP) - Police say underground nightclubs where patrons can smoke freely and watch strippers after midnight have opened in some of Cleveland's residential neighborhoods since the state began enforcing new restrictions on strip clubs and public smoking last year.

Some of the nightclubs, also called "smokehouses," offer customers the opportunity to have sex with prostitutes.

Informants have told police that patrons are mostly white suburban men. Customers bring their own liquor, cigarettes and cigars.

Cleveland police Detective Tom Shoulders says the smokehouses are comparable to the illegal gin houses, or "speakeasys" that operated during Prohibition in the 1920s and early 1930s.

Sunday, February 03, 2008

Most Strippers are classified as Independent Contractors, and they pay a stage fee to work at the club. I'll let you read the IRS FAQ, or the 20 Factor Test of the IRS, to see how you might classify them. You can also read the Fair Labor Standards Act. It seems as a lawyer in Tuscon is trying to change this by enlisting some dancers in Vegas in a class action suit:

The Nevada Supreme Court has given a go-ahead for a class-action lawsuit by an Arizona lawyer who wants Las Vegas strippers classified as club employees and paid wages by the owners of clubs where they work.

Many of the estimated 10,000 strippers in Las Vegas pay a fee to dance at clubs and sign agreements classifying themselves as independent contractors. They get no pay or benefits and earn only tips.

A panel of high court justices ruled 3-0 on Thursday that lawyer Mick Rusing of Tucson can bring a class-action lawsuit on behalf of strippers seeking to change that arrangement.

``This is going to force employers to stop living off the backs of these women,'' said Sean Brearcliffe, a lawyer at Rusing's firm. ``Some of the clubs don't pay them anything and force them to pay as much as $50 to $100 per hour out of their tips. Nevada law does not let employers take tips earned by their employees.''

Brearcliffe said that in coming months he plans to file a class-action lawsuit in Clark County District Court to force strip clubs to hire dancers as they do other employees.

If a class-action lawsuit succeeds, it will allow dancers to keep their tips and receive wages, Brearcliffe said. Clubs will have to raise revenue through higher entrance fees, drink prices and other means if his law firm persuades a judge to prohibit the independent contractor arrangement, he said.

Brearcliffe said strippers will be notified of the litigation and their right to participate if his law firm brings action against the clubs where they work. The law firm would represent the strippers on a contingency-fee basis.

Without weighing in on who is right or wrong in this debate, let me quickly sketch the issues. The battle appears to be over money and risk. At the moment with the class action lawsuit, dancers are trying to shift some of the wage risk onto the club. Since the women provide the primary product this might make sense, however we should acknowledge what the clubs provide.

Remember there is an alternative market for stripping services. Look in any phone book and you will find ads for entertainers who will come to you to preform. So what is it that clubs provide? A market, a coordinated place where dancers and customers can meet. True the phone book provides a market as well, but there are inefficiencies involved. Transaction costs are higher in the phonebook market. Asymmetric information is a larger problem. You can't verify dancer quality in the phonebook market. Whereas in the club environment, there are better opportunities to reduce those asymmetries and better match dancers with customers, while also increasing the number of matches (and thus income of the dancers). And don't forget the improved pleasure of the customers.

Think about a bachelor party with heterogeneous preferences in terms of hair color of the dancer. In a phonebook market, even if they can request a certain hair color dancer likely they will be unable to fulfill all the preferences of the bachelor party participants. Economies of scale allow the clubs to solve this problem, by providing many girls.

The other problem clubs solve is security for dancers. Here again, economies of scale serve to reduce the security costs per dancer, while simultaneously increasing their level of security.

I have always found the labor issues in strip clubs fascinating. The women are the ones who hold and sell the primary experience good, yet the clubs deserve some of the revenues for the coordination and services they provide. So the club figures out a way to extract their share from the customers and the dancers. And this leads (in my view) to some very different and bizarre approaches.

Let me be clear, I am not weighing in on the question of whether they should or should not be classified as employees, I'm merely trying to think about the value clubs provide the dancers.